Albert Einstein found only one thing more difficult than his theory of relativity. “The hardest thing in the world to understand is income tax,” the German-born genius once told his tax advisor.
At least he had an advisor. For the many German taxpayers who don’t and who are obliged to file an income tax return, Thursday marks the deadline for 2017 declarations. But if one of the greatest minds the world has ever known struggled with his return, what chance have they got to file in time?
The answer is slightly better than usual. This year, tax offices up and down the land have been granting extensions and even pushing back the official deadline to accommodate a new online income tax form. In addition, May 31 is a bank holiday in several German states, automatically giving residents an extra day to file.
Anyone who receives income other than wages from a single employer is obliged to make an income tax declaration. The May 31 deadline only applies to masochists who, while they may not have developed their own mass-energy equivalence formula, think that Einstein’s wrong and they can do without a tax advisor or accountant. Those who do use one have until December 31.
“I really must admit that I hate it. Anything else is better.”
There’s no space here to list the many pecularities of the German tax return, so let’s just say it’s laborsome. But after a mental workout that feels akin to developing a theory of relativity, completed declarations can be filed on paper or using the government’s newish Elster online portal.
Elster has been rolled out over the past few years and, following a significant upgrade late last year, several states are now incentivizing taxpayers to use it. Those living in North Rhine-Westphalia, Hesse, Saxony, Baden-Württemberg, Bavaria and Rheinland-Palatinate now have until July 31 – provided they file via the portal. Next year, this new deadline will apply in all 16 federal states, with the December deadline for those taking tax advice being extended to March 31 of the following year.
Last year, 22.1 million taxpayers used Elster, a 5 percent increase on 2016, according to digital association Bitkom. These figures include single-wage earners making voluntary declarations in the hope the state owes them something (in most cases it does, with repayments averaging €935).
But the system is far from popular. Clunky, prone to crashes and far from intuitive, it comes across as merely an online version of the paper forms rather than a simple-to-use questionnaire-style electronic return used in countries such as the UK and the United States. And then there’s the final insult: the word Elster in German means magpie, a bird well known for its tendency to steal away people’s valuables to feather its own nest…
“I really must admit that I hate it. Anything else is better than Elster,” says one advisor at a specialist expat tax consultancy in Munich, referring to the many pieces of commercial software available to assist with Elster returns. But she does point out one advantage – taxpayers no longer have to slavishly attach receipts and other evidence as they did with paper returns. They need only do so if asked by the tax office once they have submitted their forms.
For those belatedly discovering that Einstein may in fact have had a point when it comes to tax advice, there is no need to panic. Tax offices in all states look favorably on requests for deadline extensions, with four to eight weeks considered unproblematic. “Anyone submitting a convincing reason can also ask for an extension of the deadline until 30 September,” says Thomas Eigenthaler, Federal Chairman of the German Tax Union. Plausible reasons would include illness or missing documents.
But anyone wishing to ask for an extension must do it quickly, ideally in writing by May 31. “If taxpayers fail to submit their declarations on time, the tax office can set a delay surcharge,” warns Mr. Eigenthaler. The amount is at the discretion of the assessor, and depends on the size of the tax bill and the duration of the delay. But the theoretical maximum is €25,000.
You don’t have to be Einstein to work out that filing late could be a costly mistake.
David Reay is an editor at Handelsblatt Global. Katharina Schneider is a correspondent in Handelsblatt’s finance team, covering consumer rights and tax changes. To contact the authors: firstname.lastname@example.org